CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements
The auditor of Kaveri Industries Ltd. wishes to detect understatement of trade payables at the year end. Which procedure is most effective?
Vouching payments made shortly after the year end and reviewing late invoices is most effective, because it uncovers liabilities that belong to the audited year but were not recorded. Procedures on debtors, sales returns or sales cut-off address other assertions and do not test completeness of payables.
- AVouching payments made in the first weeks after year end and reviewing unrecorded invoicesCorrect
- BConfirming debtors' balances with customers
- CExamining the sales return register
- DVerifying the cut-off of sales invoices
Explanation
Liabilities are at risk of understatement, so the auditor searches for unrecorded liabilities. Reviewing post year-end payments and invoices received after the year end reveals items relating to the audit period that were not booked. Debtor confirmation and sales cut-off address assets and revenue, not payables.
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